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Leading Indicators

The Index tracks four leading indicators to get a sense of the direction of change in the county economy in the near future. The four leading indicators are (1) number of claims for unemployment insurance, (2) help wanted advertising, (3) building permits, and (4) manufacturing orders. The graphs in this section use a four-month moving average of seasonally adjusted index values in order to "smooth" ordinary month-to-month volatility and reveal underlying trends.

Graphic description: The seasonally adjusted Index of Claims for Unemployment Insurance is represented above by the blue area.  The red trendline shows a four month moving average which "smoothes" month to month volatility.

The Index of claims for unemployment insurance is an indicator of negative economic activity.  This leading indicator fell by 26.9 percent this month, suggesting an increase in economic activity in general and employment in specific in the future. This follows last month's decrease in initial claims for unemployment insurance of 6 percent.  The Index of claims for unemployment insurance now stands at 55.2, 14.4 percent lower than the same period last year.  The four month moving average now stands at 69.5, indicating a more measured decline in future unemployment.
 

Graphic description: The seasonally adjusted Index of Help Wanted Advertising is represented above by the blue area.  The red trendline shows a four month moving average which "smoothes" month to month volatility.

The Index of help wanted advertising is an indicator of labor market conditions and job creation.  This Index is based on help wanted advertisements posted in the Times Standard.  In August the number of help wanted advertisements did not meet seasonal expectations, and the index decreased 7.7 percent an Index value of 140.5.  This is a 14 percent increase in help wanted advertising from August of 2004.  The four month moving average for this indicator was higher than the actual Index with a value of 150.8.  This average is still reflecting May's high number, and has yet to fully depict the last three months' measured decline.  Combined with the decrease in the unemployment leading indicator, the future of employment in Humboldt County is still unclear.

Nationally, the Conference Board's help wanted advertising Index fell sharply after two months of growth.  Before June the help wanted advertising Index reported stagnation and decline since January.   The Index now stands at 35, down from 39 in July and 37 in August of 2004.  Says Ken Goldstein, Labor Economist at The Conference Board: "Key market indicators gave ground just before the storms and flooding. While print want-ad volume rose a bit in June and July, it sagged to May levels in August. Consumers' concerns about finding a new job were also essentially the same in August as in May, but declined noticeably in September, after the hurricanes and flooding. Latest readings show that job growth has been downsized significantly. Before the storms, there was a chance for 150,000 to 175,000 jobs per month over the near term. However, prospects may now be reduced by as much as half of that."   (conference board.org)

Graphic description: The seasonally adjusted Index of Building Permits is represented above by the blue area.  The red trendline shows the four month moving average which "smoothes" month to month volatility.

The Index of building permits issued gives insight to future home sales and construction.  In August the Index of building permits rose sharply to a value of 69.3.  This is a 37.8 percent increase from last month and a 2.3 percent decrease from the same period last year.  As you can clearly see from this indicator's recet activity, this measure experiences a great amount of month to month variability.  The four month moving average, used to determine longer term trends, rose to 63.9 this month, reflecting both the size of this month's increase and the strength the indicator showed in May and June.

Graphic description: The seasonally adjusted Index of Manufacturing Orders is represented above by the blue area.  The red trendline shows the four month moving average which "smoothes" month to month volatility. 

The Index of manufacturing orders shows expectations for future manufacturing sales.  This leading indicator shrank 0.5 percent in August and now stands at 75.2.  The represents a 6.5 percent decrease from the same period last year.  Because manufacturing orders are subject to dramatic shifts, the four month moving average helps to illustrate the larger trend.  The average of the last four months of manufacturing orders now stands at 72.5, up July's average of 70.3. 

Individual Sectors

Home Sales

California's median selling price, as reported by the California Association of Realtors, increased 5.2 percent from last month to $568,890.  This is a 20.1 percent increase over the home selling price for August of 2004.  The state sales Index also grew, increasing 7.0 percent when compared with the same period last year.  “While fixed mortgage interest rates have not increased, adjustable rates have risen in reaction to the Federal Reserve and a more general increase in short-term rates,” said C.A.R. President Jim Hamilton. “Since more buyers are relying on adjustable-rate mortgages to finance the purchase of their homes, buyers may be moving more quickly to make the home purchase decision in anticipation of future rate increases. This is adding more pressure to the price of a home.”  (car.org)

Existing home sales, a measure of the United States housing market produced by the National Association of Realtors (NAR), reported an increase in selling price and in sales rate this month.  The national median selling price of a home reached $220,000 in August, up from $218,000 in July and 15.8 percent higher than in August of 2004 when the national median selling price was $190,000.  The seasonally adjusted number of homes sold increased 2.0 percent to 7.29 million this month.  This represents a 7.8 percent increase from August of 2004, when the sales level reached 6.76 million homes.  In June the home sales pace was 7.35 million, the highest rate on record.  David Lereah, NAR’s chief economist, said the fundamental factors for housing remain positive. “With a general background of growing population and favorable affordability conditions, home sales are staying at very healthy levels,” he said. “Housing inventory improved in August but remains tight, and we have some way to go before we get into a range of balance between home buyers and sellers. As a result, we’ll continue to see above-normal home price appreciation for the foreseeable future.”  (realtor.org)

According to the country's largest mortgage company, Freddie Mac, the nationwide average for a 30-year fixed rate mortgage as of September 29th ticked upward to 5.9 percent with an average 0.5 points.  The 30-year fixed mortgage rate averaged 5.72 percent the same time last year.  Freddie Mac chief economist Frank Nothaft said "this past week's increase in mortgage rates reflects market anxieties over inflationary pressures, energy price increases, and slipping consumer confidence. Taken together these developments suggest less personal spending during the last quarter of the year and additional upward pressure on mortgage rates.  Looking ahead, next week's employment report for September will provide a critical indicator of the economic effects of the recent hurricanes. If that report confirms the market's expectation for only a slight bump in the unemployment rate and overall job losses of around 200,000 personnel, mortgage rates may not rise much more through the end of the year."  (freddiemac.com)

Retail Sales

National retail sales, as reported by U.S. Census Bureau, decreased slightly in August. Seasonally adjusted sales were $350.1 billion, down 2.1 percent (±0.7%) from the previous month but up 7.9 percent (±0.8%) from August 2004. Total sales for the June through August 2005 period were up 9.4 percent (±0.5%) from the same period a year ago.   (census.gov)

According to the Federal Reserve Board's Beige Book, economic activity in general and consumer spending in specific were strong in August.  Several districts, including the West Coast, described retail sales as "expanded, brisk, or solid".  Vehicle sales in particular were strong, although many retailers reportedly fear high fuel prices will adversely affect retails sales in general.  (federalreserve.gov)

Looking to the future, consumer confidence as measured by The Conference Board fell sharply in September.  The consumer confidence Index now stands at 86.6 (1985=100), down from 105.5 last month.  "Hurricane Katrina, coupled with soaring gasoline prices and a less optimistic job outlook, has pushed consumer confidence to its lowest level in nearly two years (81.7 in October 2003) and created a degree of uncertainty and concern about the short-term future,” says Lynn Franco, Director of The Conference Board Consumer Research Center. “Historically, shocks have had a short-term impact on consumer confidence, especially on consumers’ expectations. Fuel prices remain high, though they have retreated in recent days, and when combined with a weaker job market outlook, will likely curb both confidence and spending for the short-run. As rebuilding efforts take hold and job growth gains momentum, consumers’ confidence should rebound and return to more positive levels by year-end or early 2006.” (conference board.org)

Hospitality

The hospitality sector declined this month, decreasing 4.4 percent from July to an Index value of 92.4.  This is a 2.5 percent decrease from August of 2004 and a 4.9 percent decrease from August of 2003.  Contrarily, the four-month moving average increased 1.7 percent, moving up 92.9.  The four month moving average is bolstered by June and July's higher than expected values as well as August's Index value, which is much higher than April's value of 85.7.  Please note that the index numbers are seasonally adjusted and relate back to the base month January 1994.   This seasonally adjusted index is different from raw occupancy rates, as the expected seasonal variation is removed so that changes over time can be compared more appropriately.  The twelve-month moving average, indicated by the red trend line, shows that while the hospitality sector fluctuates from month to month beyond seasonal variability, the overall trend is one of consistency.  The twelve-month moving average has not dropped below 90.0 or reached above 100.0 in four years.

According to a study recently released by the California's tourism department, the state's domestic tourism increase for the first time since 2001 in 2004.  The growth was measured, just 0.1 percent more than in 2003, but the number of people visiting California in 2004 exceed the national average by increasing 4.8 percent.  Business travel to and through California grew 12.5 percent in 2004.

Gasoline Prices

Average Price* (as of 9/13)		Change From Prev. Month (cents/gal.)
Eureka	$3.19	28¢
Northern Ca	$3.05	30¢
California	$3.03	26¢
Current average price per gallon of self-serve regular un- leaded gasoline as reported by the American Automobile Association's monthly gas survey (www.csaa.com).

Electricity Consumption

Total County Employment

The Index value of the employment sector is based on seasonally adjusted total employment as reported by the Employment Development Department.

Preliminary employment and labor force data for August reported 57,900 people employed in Humboldt County.  This is a net gain of 500 jobs from July's revised figure.  The majority of the jobs gained were within the local government.  The total civilian labor force also increased by 500 people to 61,400. After adjusting for seasonal variation, the employment sector's Index value increased 2.0 percent to 106.1.  This represents a 2.9 percent increase from the same period last year.  This is the first increase in the employment sector since March.

Sectoral changes in Humboldt County employment:

• Overall the service sector posted a net loss of 500 jobs in August.
  
• Retail Trade gained 100 jobs.
• Financial and Insurance Services lost 100 jobs.
• Local Government gained 500 jobs.

• Net employment in the manufacturing sector posted a net loss of 200 jobs in August.
• Wood Product Manufacturing lost 200 jobs.
  

Lumber Manufacturing

In August lumber based manufacturing fell, decreasing 9.4 percent to an Index value of 76.5.  This represents a 0.6 percent decrease over August of 2004's figure.  The four month moving average, balanced by this month's drop and June and July's relatively high numbers, remained somewhat stable.  The four month moving average now stands at 81.4, a 1.7 percent decrease from last month.

Nationally manufacturing grew at an increased rate when compared with July.  According to the Institute of Supply Management (ISM) the manufacturing sector grew for the 28th consecutive month, registering 59.4 percent on August 3rd.  A number over 50 indicates growth.  Though still a strong value, this month's growth is less robust that the growth we saw last month, when ISM reported a value of 56.6 percent.  "The PMI made a strong move to the upside as New Orders and Production rose significantly. This move was supported by slower deliveries and growing order backlogs. While energy prices and the impact from Hurricane Katrina are major concerns, the manufacturing sector has regained significant momentum." said Norbert J. Ore, C.P.M., chair of the Institute for Supply Management. 

Twelve industry sectors reported growth in August, including paper, electronic components and equipment, apparel, tobacco, wood and wood products, furniture, and chemicals.  Within the manufacturing sector, industry representatives voiced mixed responses to Hurricane Katrina.  Some complained that decreased supply of raw materials either produced in the affected areas or transported through the port of New Orleans diminished production, respondents in instruments and photographic equipment reported that clean-up and reconstructions efforts in the affected area have substantially increased orders for goods.  (ism.ws.cfm)

Explanatory Note: For those of you who are new or less familiar with the Index, we have been tracking economic activity since January 1994. The composite indices plotted as blue and red lines in the diagram at the top of this page are weighted averages of each of the six sectors described in the table above. Each sectoral index, and the composite index, started at a value of 100 in 1994. Thus if the retail sectoral index value is currently 150, that means that (inflation-adjusted) retail sales among the firms that report data to us are 50 percent higher than in January 1994. We also seasonally adjust each sector, and the composite index, to correct for "normal" seasonal variation in the data, such as wet season vs. dry season, and so trends in the seasonally-adjusted composite index provide a better indication of underlying growth and fundamental change in the economy. Each month's report reflects data gathered from the previous month.  For example, the "August 2003" report reflects data from July 2003.  As is common, our initial report is preliminary, and as we receive final data we revise our reports accordingly.

Cited References

American Automobile Association

California Association of Realtors

The Conference Board

Freddie Mac

Institute of Supply Management

National Association of Realtors

U.S. Bureau of the Census's home page

U.S. Bureau of the Census's Economic Briefing Room

U.S. Bureau of Labor Statistic

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Copyright © 2005 Erick Eschker